Gold Bulls Persist on Dollar Drop as Stimulus Kept: Commodities

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The hallmark details on a 500 gram gold bar are seen at London bullion dealers Gold Investments Ltd. in London. Close

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Photographer: Simon Dawson/Bloomberg

The hallmark details on a 500 gram gold bar are seen at London bullion dealers Gold Investments Ltd. in London.

Gold analysts are bullish for a second week on speculation that prolonged U.S. stimulus and a weakening dollar will boost demand for the metal as a haven.

Seventeen analysts surveyed by Bloomberg News expect prices to advance next week, nine are bearish and six neutral. The Bloomberg U.S. Dollar Index, a measure against 10 currencies, slid to an eight-month low this week as U.S. employers added fewer jobs than expected last month. Gold’s 30-week correlation coefficient to the index is at minus 0.53, with a figure of minus 1 meaning the two always move in opposite directions.

A 16-day U.S. government shutdown this month probably hurt economic growth, at a time when the Federal Reserve is debating whether to trim stimulus. Gold rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system. The metal tumbled into a bear market in April and is heading for its first annual drop in 13 years as some investors lost faith in bullion as a store of value.

“It’s pretty clear with the shutdown lasting over two weeks and the negative news with the non-farm payrolls that it would be a brave Fed to announce tapering at this stage,” said Jonathan Butler, a precious metals strategist at Mitsubishi Corp. (8058) International (Europe) Plc in London. “The potential for tapering to be delayed plus the residual weakness in the dollar might give some extra oomph to precious metals.”

American Eagles

Bullion fell 19 percent to $1,352.05 an ounce in London this year. Prices that reached a record $1,921.15 in September 2011 rallied as much as 8.4 percent since Oct. 15. The Standard & Poor’s GSCI gauge of 24 commodities dropped 3.4 percent since the start of January and the MSCI All-Country World Index of equities gained 17 percent. The Bloomberg U.S. Treasury Bond Index lost 1.8 percent.

Prices also rallied on signs of improving demand for physical metal. Sales of American Eagle gold coins by the U.S. Mint are set for the best month since July and holdings in bullion-backed funds rose the most in a year on Oct. 22, according to data compiled by Bloomberg.

Lawmakers agreed to increase the debt limit on Oct. 16, ending a partial government shutdown that President Barack Obama’s chief economic adviser said probably trimmed 0.25 percentage point from fourth-quarter economic growth. U.S. employers added 148,000 workers in September, trailing economists’ expectations of a gain of 180,000, the Labor Department said Oct. 22.

Policy Makers

Fed policy makers unexpectedly refrained from slowing the $85 billion of monthly bond-buying last month and economists surveyed by Bloomberg Oct. 17-18 said the central bank probably will maintain that level until March.

The U.S. Mint sold 39,000 ounces of American Eagle coins so far this month, triple September’s total, data on its website show. Gold holdings in exchange-traded products rose by 6.5 metric tons on Oct. 22, the most since October 2012, according to data compiled by Bloomberg.

The first net purchases through ETPs in more than two weeks lifted holdings from the lowest since April 2010. Investors sold 745.7 tons this year, erasing $60.1 billion from the value of the products. John Paulson, the billionaire hedge fund manager and biggest investor in the SPDR Gold Trust, the largest gold ETP, cut his stake in the product by 53 percent in the second quarter, a government filing showed.

While gold’s drop through the end of the year may be less substantial than previously forecast, investors may use any rallies as an opportunity to sell because stimulus tapering has only been delayed, ABN Amro Group NV said in an Oct. 23 report. Goldman Sachs Group Inc. projects prices will be at $1,050 at the end of 2014.

Inflation Outlook

Bullion slid from its 2011 all-time high partly because unprecedented money printing failed to stoke inflation. Expectations for gains in U.S. consumer prices, as measured by the break-even rate for 10-year Treasury Inflation Protected Securities, reached a five-week low yesterday.

India, last year’s biggest gold consumer, restricted imports of the metal this year to curb a record current-account deficit. A shortage pushed premiums over the spot price to a record this week, according to the All India Gems & Jewellery Trade Federation. Demand for bullion before the Diwali festival that takes place at the start of November may support prices, said James Moore, an analyst at FastMarkets Ltd. in London.

Four of 11 people surveyed expect raw sugar to gain next week and four were bearish. The commodity lost 2.5 percent to 19.02 cents a pound on ICE Futures U.S. in New York this year.

Grain Surveys

Nine of 24 people surveyed anticipate lower corn prices and seven said the grain will rise, while 12 of 26 said soybeans will climb and eight expect lower prices. Eleven predicted gains in wheat and nine were bearish. Corn fell 37 percent to $4.41 a bushel this year in Chicago. Soybeans slid 7.9 percent to $12.985 a bushel, as wheat slid 11 percent to $6.92 a bushel.

Six traders and analysts surveyed expect copper to advance next week, two were bearish and nine neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, dropped 9.5 percent to $7,175.50 a ton this year.

The S&P GSCI gauge of raw materials rose as much as 5.4 percent and declined as much as 7.8 percent since the start of January. A report from HSBC Holdings Plc and Markit Economics showed yesterday that manufacturing in China strengthened this month more than economists had expected. The world’s second-biggest economy will expand 7.4 percent next year, the least since 1990, economist estimates compiled by Bloomberg show.

“From a pure fundamental perspective you probably don’t have major upside at the moment but you don’t have major downside either,” said Michael Widmer, head of metal markets research at Bank of America Merrill Lynch in London. “The delay to Fed tapering is probably supportive for commodity prices. On the macro-economic side you do have a few conflicting signals.”

Gold survey results: Bullish: 17 Bearish: 9 Hold: 6
Copper survey results: Bullish: 6 Bearish: 2 Hold: 9
Corn survey results: Bullish: 7 Bearish: 9 Hold: 8
Soybean survey results: Bullish: 12 Bearish: 8 Hold: 6
Wheat survey results: Bullish: 11 Bearish: 9 Hold: 2
Raw sugar survey results: Bullish: 4 Bearish: 4 Hold: 3
White sugar survey results: Bullish: 4 Bearish: 4 Hold: 3
White sugar premium results: Widen: 4 Narrow: 2 Neutral: 4

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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